The Anti-Money Laundering and Counter-Terrorism Financing Bill 2017 implements a first phase of reforms from a comprehensive review of Australia's anti-money-laundering and counter-terrorism financing (AML/CTF) regime.

The report on the review was tabled in parliament in 2016. It made 84 recommendations to strengthen, streamline and simplify Australia's AML/CTF regime.

Australia's regime must keep pace with international trends and developments in order to combat and disrupt money laundering and terrorism financing.

Money laundering and terrorism financing methods—by their very nature—continue to evolve and criminals will look for new ways that they can exploit opportunities and avoid detection.

Technological advances, market developments and the emergence of new products and services can create new and emerging risks that currently fall outside the scope of Australia's AML/CTF regime.

Technological advances can also generate opportunities for more efficient and effective regulation.

The bill implements a number of priority measures that will modernise our AML/CTF regime. It will:

Closing a regulatory gap

Australia's AML/CTF regime was developed at a time that did not contemplate the use of digital currencies such as bitcoin. Bitcoin now represents more than half of the total market capitalisation of all digital currencies, which is currently close to a staggering $112 billion Australian dollars.

Digital currencies largely operate outside of the regulated financial system. They are becoming an increasingly popular method of payment for goods and services, and transferring value, in the Australian economy.

It is recognised globally that convertible digital currencies, such as bitcoin, pose significant money laundering and terrorism financing risks because they allow people to move money around the world on a peer-to-peer basis without revealing their identity.

In view of these risks, the report on the review recommended that the AML/CTF Act should be amended to regulate activities relating to convertible digital currencies.

The bill regulates digital currency exchanges, as this is the point where digital currencies intersect with the regulated financial system.

Businesses that trade digital currencies for money, and vice versa, will be required to:

Closing this regulatory gap will have a number of important benefits. It will:

The Attorney-General's Department has consulted extensively with the digital currency sector about regulating it under the AML/CTF regime.

Most businesses in the digital currency exchange sector welcome the introduction of AML/CTF regulation, as they are already mindful of the risks posed by the services they provide. Many digital currency exchange providers already comply with a voluntary code of conduct that includes guidance on measures for protecting their services from illicit exploitation for money laundering and terrorism financing purposes. Industry representatives have noted that AML/CTF regulation of activities relating to convertible digital currencies will bolster public and consumer confidence in the sector.

Regulation under the AML/CTF regime will formalise these measures and reinforce the legitimacy of digital currency exchanges. An appropriate transition period will also ensure the burden of complying with the new regulatory regime is limited.

Providing regulatory relief to industry

The report on the review made a number of recommendations to provide industry with regulatory relief by simplifying and streamlining these requirements.

These recommendations are consistent with the government's agenda to cut red tape and reduce the costs of complying with Commonwealth regulation.

The bill deregulates two sectors:

The money laundering and terrorism financing risks posed by the services provided by these two sectors is considered low. The report on the AML/CTF regime considered the risk and recommended deregulation by repealing these designated services.

The deregulation of the cash-in-transit sector will deliver savings of approximately $326 million over the next 10 years. Deregulating some insurance intermediaries and general insurance providers will also deliver savings of over half a million dollars over the same period.

The bill also makes a number of changes to improve the operation of the correspondent banking provisions under the AML/CTF Act and better align them with current international banking practice.

This includes:

The latter change will remove a competitive disadvantage currently faced by Australian banks when engaging in correspondent-banking relationships with 'nonbanks'.

The bill also enhances the ability of related corporate bodies to share information within their group about the money-laundering and terrorism risks associated with a shared customer.

The AML/CTF Act allows some associated businesses or persons to join together as a 'group' and share certain obligations to minimise their compliance burden.

The existing definition of a 'group' does not reflect the way businesses actually structure themselves into 'corporate groups', particularly multinational corporate groups. This prevents businesses from sharing information about shared customers and impedes the ability of the group to manage risks associated with that customer.

The bill will insert a new definition of a 'group' to better reflect the reality of business structures and allow these related corporate bodies to better manage risks across the group.

Enhance enforcement of cross-border reporting obligations

The AML/CTF Act establishes a reporting regime for the cross-border movement of physical currency and bearer negotiable instruments, such as travellers cheques.

The bill will strengthen the ability of police and Customs officers to enforce these reporting obligations, establishing search and seize powers for cash, travellers cheques and other items.

The search and seizure powers will be available for the police and Customs officers to use where:

The bill will also establish civil penalty orders for the offences under sections 199 and 200 of the AML/CTF Act, which are currently only subject to criminal penalties. A civil penalty option would provide law enforcement greater flexibility in responding in a proportionate manner to such breaches.

AUSTRAC has a dual role as Australia's financial intelligence unit and AML/CTF regulator.

Over the past seven years, the role played by AUSTRAC has evolved. AUSTRAC now plays a greater role in supporting international and collaborative efforts to combat and disrupt money laundering, terrorism financing, the proliferation of weapons of mass destruction and other serious crimes.

The bill will update the powers and functions of the AUSTRAC CEO to better reflect and support the full range of work performed by AUSTRAC, giving a legislative basis to this work.

This includes:

Strengthening AUSTRAC's role: Retrospective remedial directions

The report on the AML/CTF review recommended that the AUSTRAC CEO be given a power to issue remedial directions to require regulated businesses to retrospectively rectify contraventions of a civil penalty provision.

Where a regulated business has failed to submit certain financial transaction reports, the ability to retrospectively secure compliance may enable a financial intelligence gap to be addressed.

The bill establishes checks and balances for the exercise of this power. In particular, it will not apply to any conduct that occurred before this bill enters into law.

Strengthening AUSTRAC's role: Registration of remitters

The bill will implement a number of review recommendations to clarify and strengthen the ability of the AUSTRAC CEO to deal with the registration of remitters.

The remittance sector is diverse, ranging from large organisations that oversee international remittance networks to smaller, informal money-transfer systems that often operate outside the regulated financial system.

The services provided by remitters are considered to pose a high risk of money laundering and terrorism financing because they operate outside of the conventional banking system and often involve sending money to places that do not have established, modern banking networks.

Remitters operating in Australia are regulated under the AML/CTF Act. They must register with AUSTRAC and apply for renewal of registration every three years and are subject to AML/CTF compliance and reporting obligations.

The bill will give the AUSTRAC CEO stronger powers to effectively supervise the registration of remitters and assist in addressing some of the risks posed by the sector.

The b ill will enable the AUSTRAC CEO to cancel the registration of a person if the AUSTRAC CEO is satisfied on reasonable grounds that the person is no longer conducting remittance activities.

A power to suspend or cancel a remitter's registration once the registered remitter ceases to carry on a remittance business would ensure that dormant registration certificates are not used by third parties to avoid AUSTRAC scrutiny.

If a registered remitter appears to have an inactive registration, the AUSTRAC CEO would be required to issue a notice setting out the CEO's decision to cancel registration and the date from which registration will be cancelled. A decision to cancel registration would be reviewable.

The bill will also clarify that the AUSTRAC CEO has the power to renew registrations with conditions and that a decision to refuse an application for renewal of registration is reviewable.

Strengthening AUSTRAC's role: expanded infringement notice provisions

The use of infringement notices under the AML/CTF Act is currently restricted to six minor regulatory offences.

For contraventions of other minor regulatory offences under the AML/CTF Act, the AUSTRAC CEO must conduct civil proceedings through the Federal C ourt.

This process is costly and time- consuming and does not always allow AUSTRAC to respond in a timely and proportionate manner to secure compliance.

The report on the review recommended extending the use of infringement notices under the AML/CTF Act. The bill implements this recommendation and extends the use of infringement notices to an additional 11 minor regulatory offences.

This will give the AUSTRAC CEO additional, more expedient and efficient means for promoting and encouraging compliance as an alternative to applying for a civil penalty order through the Federal Court.

Administrative and definitional changes

The bill will also implement a number of minor amendments to the AML/CTF Act.

This includes:

Conclusion

This bill is the first legislative instrument to implement recommendations of the review of the AML/CTF regime.

The statutory review provided an opportunity to shape a modern AML/CTF regime that positions Australia to address current and future challenges.

The Attorney-General's Department and AUSTRAC consulted extensively with industry during the review of the regime to ensure that any reforms are relevant, efficient and effective.

The department and AUSTRAC also consulted with industry during the development of the reforms in this bill.

This genuine dialogue between government and industry will continue during the other implementation phase of this bill. I commend this first phase of these very important reforms to ensure that Australia has a world-leading anti-money-laundering and counterterrorism financing regime to the House.